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(1)Suppose your company is evaluating a project with the set of yearly cash flow

ID: 2628713 • Letter: #

Question

(1)Suppose your company is evaluating a project with the set of yearly cash flows: -10,000; 2,500; 3,500; 5,000; 4,000; 2,000. If the risk-appropriate discount rate is 12 percent, what is the project's NPV? (A)$2,258.15 (B)$3,560.00 (C)$915.67 (D)-$144.16

(2)What is the IRR for a project with yearly cash flows of -10,000, 2,500, 3,500, 5,000, 4,000, and 2,000 if the company faces a 10 percent cost of capital? (A)62.20 percent (B)10.00 percent (C)13.76 percent (D)20.62 percent

(3)Consider the following Khols Corporation bond: a 7.375%, Oct 15, last price 110.01, last yield 4.991. Assuming a $1,000 par value, what is the bond's semi-annual interest payment and current price? (A)$45, $1,376.25 (B)$36.88, $1,100.10 (C)$125, $5,339.00 (D)$73.75, $1,100.10

Explanation / Answer

(1)Suppose your company is evaluating a project with the set of yearly cash flows: -10,000; 2,500; 3,500; 5,000; 4,000; 2,000. If the risk-appropriate discount rate is 12 percent, what is the project's NPV?

NPV = -10000 + 2500/1.12 + 3500/1.12^2 + 5000/1.12^3 + 4000/1.12^4 + 2000/1.12^5

NPV = $ 2258.15

Answer

(A)$2,258.15

(2)What is the IRR for a project with yearly cash flows of -10,000, 2,500, 3,500, 5,000, 4,000, and 2,000 if the company faces a 10 percent cost of capital?

(D)20.62 percent

(3)Consider the following Khols Corporation bond: a 7.375%, Oct 15, last price 110.01, last yield 4.991. Assuming a $1,000 par value, what is the bond's semi-annual interest payment and current price?

bond's semi-annual interest payment = 1000*7.375%*1/2 = $ 36.88

current price = 1000*110.01% = 1100.10

(B)$36.88, $1,100.10